Crude tumbles 4% as U.S. consumer sentiment falls

PolyaLesova

NEW YORK (MarketWatch) -- Oil futures tumbled to end below $68 a barrel on Friday as falling U.S. consumer sentiment dashed hopes of a swift economic recovery and put energy prices under heavy selling pressure.

Traders booked profits and bet that the current level of oil prices, which are up more than 50% this year, is not justified by fundamentals.

Light sweet crude for September delivery fell $3.01, or 4.3%, to end at $67.51 a barrel on the New York Mercantile Exchange. Earlier, the contract hit an intraday low of $67.12 a barrel on Globex.

Oil prices posted a weekly decline of $3.42, or 4.8%, from last Friday's closing level of $70.93.

"Oil is lower with the stock market today and the catalyst is the consumer sentiment [data]," said James Cordier, president of Tampa, Fla.-based Liberty Trading Group. "If consumer sentiment is waning, consumer spending is going to do the same."

The U.S. consumer sentiment index unexpectedly declined in early August to 63.2 from 66.0 in July, according to media reports on Friday of the Reuters/University of Michigan index. See Economic Report.

It's the lowest reading since March, and is significantly worse than the 69.0 that was expected by economists surveyed by MarketWatch. Sentiment has fallen two months in a row.

"During the past week or so, the market keyed upon positive economic data points and hopes for the economic recovery," said John Kilduff, senior vice president of energy at MF Global.

"There was a feeling everyone was on board until you saw today's consumer sentiment number, which was an off-the-charts bad number and it goes to the heart of economic activity in the U.S.," Kilduff said. "The [oil] market started to sell off once that consumer sentiment number hit the tape."

U.S. equities retreat

Stocks on Wall Street posted losses, with the S&P 500 index
SPX, -1.54%
ending down 0.9% to 1,004.10 points. Oil prices have tended to track movements in the equity markets in recent months.

"With the equity market lower today and the dollar higher, crude is weak and is probably seeing a bigger percentage loss than the equity markets due to the reality of bearish fundamentals," said Tariq Zahir, managing member of Tyche Capital Advisors LLC, in emailed comments.

In the currency markets, the U.S. dollar rose against most of its major rivals. Dollar strength typically weighs on dollar-denominated commodities because it makes them more expensive for holders of other currencies. See Currencies.

The dollar index
DXY, -0.05%
which measures the U.S. unit against a basket of six major currencies, rose to 78.764 compared with 78.390 in North American late trade on Thursday.

Crude futures ended slightly higher on the New York Mercantile Exchange Thursday, aided by the dollar's weakness and better-than-expected economic data from Germany and France. See full story.

"I think oil is selling off today on the thoughts that this rally in the market has outpaced itself so far and that we are due for some near-term correction and profit-taking," said Zachary Oxman, managing director at TrendMax Futures.

Traders also digested data showing that U.S. industrial output rose in July for the first time since October, while U.S. consumer prices were unchanged in July. See Economic Report.

Also on the Nymex, September reformulated gasoline fell 8.12 cents, or 4%, to end at $1.9380 a gallon and September heating oil dropped 6.18 cents to finish at $1.8410 a gallon.

September natural-gas futures fell 9.80 cents, or 3%, to end at $3.238 per million British thermal units.

In exchange-traded funds, the United States Oil Fund LP
USO, +0.52%
fell 4.7%, while the United States Natural Gas Fund LP
UNG, +0.92%
edged up 0.2%.

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